JAX London 2015 talk

1. VC from the inside
a techie’s perspective
@adriancolyer, amc@accel.com

3. Idealized Startup Lifecycle

4. Remember the Waterfall Model?
Requirements
Design
Implementation
Verification
Maintenance
● Doesn’t work well in the face
of changing requirements and
uncertainty.
● What’s true for software
projects is also true for
building companies...

5. Launch
Customer
Validationvision
founding
team
problem/
solution fit
Scale
product/
market fit
exit
event
Customer
Discovery
decreasing risk / increasing confidence
increasing valuation
TEAM MARKET METRICS
$ seed
$$ A
$$$ B
Customer
Creation
$$$ C, D,...
repeatable,
scalable sales &
growth model

6. It all starts with the Team...

7. The 10x team
10x
programmer?
200x
shorter lead times
???x
founding team

8. Supercell

10. “We used this simple sentence to describe our idea of a new
kind of games company that would put people front and
center. We thought to ourselves: “What if you put together a
games company the way you’d put together a professional
sports team?” In that type of model, the sole mission of the
founders and management would be to acquire the best
talent FOR EVERY SINGLE POSITION, create the best
possible environment for them, and then get out of the way. It
would be an environment with zero bureaucracy. A place
where the best people could make the biggest possible
impact and nothing would stand in their way. Everything else,
including financial goals, would be secondary.”

11. PillPack

12. Bus Factor!
"Arriva London bus LT2 (LT61 BHT) 2011 New Bus for London, Victoria bus station, route 38, 27 February 2012 (1)" by Tom Page from London, UK (original), cropped by User:Ultra7 - Crop of File:Arriva London bus LT2 (LT61 BHT) 2011 New Bus
for London, Victoria bus station, route 38, 27 February 2012 (1) uncropped.jpg. Licensed under CC BY-SA 2.0 via Commons - https://commons.wikimedia.org/wiki/File:Arriva_London_bus_LT2_(LT61_BHT)_2011_New_Bus_for_London,
_Victoria_bus_station,_route_38,_27_February_2012_(1).jpg#/media/File:Arriva_London_bus_LT2_(LT61_BHT)_2011_New_Bus_for_London,_Victoria_bus_station,_route_38,_27_February_2012_(1).jpg

13. The Limiting Factor isn’t Money

14. A ~7-8 year journey

15. It's a marriage...

16. Relationships matter
● You’ll most likely go through some tough times together
● Often end up becoming lifelong friends
● Significant investment of time to nurture companies
● Portfolio companies act as local ambassadors and subject-
matter experts
● Repeat entrepreneurs, and referrals from previous
entrepreneurs, are a great source of new investments too!

17. Partner Time is the limiting factor
General Partners
Venture Partners
Associate Partners
Your Board

18. The Opportunity:
Go Big or Don’t Go VC

20. Law of Thirds
⅓ ⅓ ⅓

21. Actual
"Long tail" by User:Husky - Own work. Licensed under Public Domain via Commons - https://commons.wikimedia.org/wiki/File:Long_tail.svg#/media/File:Long_tail.svg
Unicorn: http://discoverie.deviantart.com/art/Winged-Unicorn-400901130

22. Behind the curtain
Limited
Partners
(LPs) $$$
11 yr Partnership
Fund, e.g.
$500M
3-4 years to
make new
investments
Reserved
funds for
follow-on
investment
+ GPs

23. 3-5x return over 10 years
Winners need to win Big!
$500M -> $1.5-2.5B

24. Market Potential
Invest $1M, best possible return $50M?
50x!
Rule of thumb: potential to be worth at
least $500M. TAM...

25. Ownership Implications
● When the company wins big, the fund needs to win big too
● Prefer to invest more money in return for meaningful
ownership stake
Reminder:
competing
for GPs
time...
20%

26. Worked Example
Market
cap/ownership
$500M $750M $1.5B $3B
10% $50M (3.3x) $75M (5x) $150M (10x) $300M (20x)
20% $100M (6.7x) $150M (10x) $300M (20x) $600M (40x)
30% $150M (10x) $225M (15x) $450M (30x) $900M (60x)
40% $200M (13.3x) $300M (20x) $600M (40x) $1.2B (80x)
Consider an average investment of $15M

27. Recap:
● What an investment team looks for varies by company stage
● Team and market opportunity always matter
○ The team is the most important thing
○ The market opportunity has to be big enough
○ There must be an opportunity to invest enough to end up
with a meaningful ownership percentage
● At later stages, metrics increasingly come into play

28. IKIWISI
Two things investors fear:
● IDSI
● IDKIWISI
Combat both with a Prepared Mind...

30. ILC
credit: Simon
Wardley
ILD

34. Dumb Client (web
browser)
Monolithic App
Logic + Presentation
DB
presentation
(HTML)
Static Deployment
on-prem
6-12 month cycle
Rise of
the
Apps
Native
app
Web
app
data
(json)
API
embedded library
Monolithic App
Logic Only
DB
Static Deployment cloud-
hosted?
1-3 month cycle
Time to
market
Native
app
Web
app
data
(json)
embedded library
externalserviceAPI
API
DB DB DB
Dynamic Deployment
cloud-native
10x day ++

35. Infrastructure Prepared Mind

36. There are 2 sides to every (successful)
story

37. How do you get a #1 hit single?

38. Think of the
business as a
machine
Initial contact
with a human
being
Profit

39. Metrics for Pirates Machine (Dave McClure)

40. Making a profit!
Customer
Profitability
ARPU
Avg. Cust
Lifetime
Cost to
Serve
No of Deals
Closed
Total cost of
Sales & Mktg
LTV
CAC
% Churn
Rate
Level of touch
required
Marketing
program costs
Sales Funnel
Conversion
Metrics
Personnel
costsCredit: David Skok, http://www.forentrepreneurs.com/saas-metrics/

41. Remember....
We’re investing in your business,
Not buying your product!

42. Raising Money!

43. Some advice shamelessly stolen
from a true pro...

44. The Process
First call
or
meeting
In-depth
meeting
Partnership
presentation
30
Engaged
process
1252501000
Term-sheet
presented &
deal done
15
25%
75%
50%
50%
25%
75%
50%
50%
Track...

45. Catawiki

46. Fundraising is a
campaign...

47. Getting attention
Get
Noticed!
Do Your
Research
Get the
Intro
Make the
most of
the intro...

48. The Pitch...
● Be memorable, confident, honest, and well-prepared!
● Pitch your business… not the market or the competition
● State clearly what you do and how your business works
● Demonstrate what investors are looking for
● Know your metrics and unit economics
● Know your risks and be open about them
● Understand where you are in the process and your objectives:
○ get funded, get to the next meeting, create a relationship, detect whether likely to be a good match,
...

49. Congratulations to Doctolib...

50. Everyone starts small!

51. Raising is only the very beginning...

52. A ~7-8 year journey

53. There for the big things, and the little things...

54. The last word...
“I am sure you knew this already, but from
the CEO’s perspective you are the perfect
board member - insightful, strategic,
supportive, and responsive. I am very lucky
to have you on our board.”
- Ilka Paananen, Supercell

55. Lesson Summary
● The Team and the Market Opportunity always matter
● The limiting factor isn't money
● Think of bringing in an investor like entering a marriage
● Winners need to win big (and generate big returns)
● There are two sides to every successful story
● Getting a meeting is just the beginning...
● Not now doesn't have to mean never
● It’s a journey, not a transaction